iPod production truly a global affair

A new study takes a look at where the value of a 30GB iPod video is added, and …

With all of the iPhone coverage lately, it's easy to forget about other Apple products, like the iPod, that we're heard relatively little about recently. Usually, iPod stories are about widescreen iPod rumors or a new game, but this iPod-related story is a bit different since it's about global economics. If you don't love economics as much as I do (I'm not kidding, either), here's a ridiculously condensed version of what you need to know: supply chains in the global economy are very complex, with lots of firms in lots of countries buying and selling things at various stages of the chain. In this complex system, the value a certain country or company adds is calculated as the price they sell a certain item for, minus the cost they pay for it (parts, labor, etc.).

So where does the iPod fit into this discussion of value? Well, if you're curious about just where your iPod comes from, a new study has shed quite a lot of light on where the iPod's value is generated. Economist Hal Varian (who helped with the Google AdWords algorithm, but I digress) has written a nice summary of the study, which attempts to calculate the value added by each step in iPod production, starting with the components. Tracking down where the iPod's 451 parts originate is pretty complicated, as is figuring just how much the parts cost compared to how much they sell for. Apparently, $155 of the $299 you pay for a 30GB iPod video goes to Apple: a tidy $80 profit and roughly $75 for retail and distribution. Japan contributes $26 to the final price, while Korea contributes only $1. There's also another $110 in components that haven't yet been accounted for.

There are a few points to take away from all this. The total cost of the 30GB iPod is estimated to be $150 and, although the trade statistics show $150 going to China from the US for each iPod you see in an Apple store, the real picture is much different thanks to the complex nature of the iPod's supply chain. The value added by China is actually only on the order of $4, meaning that much of the $150 figure actually winds up in a variety of different places. And while the global supply chain for the iPod is complex (as most global supply chains are these days), much of the value is added by Apple because of Apple's ability to take relatively inexpensive components and turn them into something much larger than the sum of the parts.